It seems like everyone is asking, “What’s blockchain?”, “What is Bitcoin?”, “What’s the difference between cryptocurrency A. vs B., like Bitcoin vs Ethereum?”
Well, if you’re suspicious about this whole Bitcoin, Ethereum or Blockchain business, you’re not alone. Important questions about the new technology haven’t been answered, namely who invented Bitcoin? Coupled with most people’s unfamiliarity with the new cryptocurrency it would seem that you have good reason to approach Bitcoin, Ethereum and Blockchain with caution. However, by the end of this article you’ll have a better understanding of the history and conception of Bitcoin, Ethereum, and what Blockchain technology is- and also what it is not.
Two Birds with One Stone
Even though we may not know the true identity of Bitcoin’s inventor, we do know what the purpose of it was… the code was written on one hand to create a decentralized currency and on the other to solve a unique problem digital currency has inherently faced since its inception: double-spending. For those who have never had time to ponder the complexities of digital currency exchange, double-spending is exactly what it sounds like- digital fraud and digital counterfeiting. Just as paper currency has the ability to be counterfeited, there has always been the dangerous probability that digital transactions would be counterfeited by hacking, copying or possibly spoofing the digital signatures that are transmitted to verify that a transaction has taken place.
The world’s central banking systems historical solution to remedy counterfeiting tangible currencies has been the use of more advanced security features for their tangible, fiat currencies which had in turn created costly currency production. These production techniques include watermarks, thermal inks, holograms, design changes and more. All have been implemented to ebb the growth of more refined counterfeiters that had already overcame previous security measures implemented by central banks. Now that the wave of the digital revolution has swept up the financial sector, banks and governments are scrambling to not end up as debris in its wake. Hence the need to create a secure method of implementing and recording digital transactions.
No, Bitcoins aren’t really physical coins…
The Birth of Bitcoin and the Blockchain
Yes, Bitcoin is an illegitimate child and like any true bastard people speculate who the real father is, but for our purposes we will only refer to Satoshi Nakamoto- the man who had his name on the birth certificate. Eerily, on October 31- Halloween- of 2008 this mysterious figure or group had a paper titled Bitcoin: A Peer-to-Peer Electronic Cash System posted on a mailing list. In the aforementioned paper the first blockchain is conceptualized. The Bitcoin network released an open-source client in January of 2009, laying the foundation for the flurry of cryptocurrencies that would eventually be established in the following years.
There are a number of milestones Bitcoin reached over the next five years, but ultimately Bitcoin rose out of obscurity, going from the value of a fraction of a cent, to needing 10k Bitcoins to indirectly buy two pizzas from Papa Johns, to being valuable enough to be on your mind right now. Funny how the world of finance works, huh?
Representative of the network of nodes that Bitcoin uses to run blockchain technology.
Understanding the Blockchain
Using laymen’s terms, in a nutshell, the blockchain is an open, distributed and decentralized ledger system in which no data block can be edited or altered after its creation without the assistance and approval of all the other data centers in the network in editing that entry and every chronological entry thereafter. This system isn’t foolproof, but it is designed very well for what it does.
As I tried to contemplate a unique metaphor for the blockchain, the best I could come up with was comparing it to a team of linguists deciphering an ancient text written in an unknown language. The first linguist to crack the unknown text shares his findings with his team for verification and peer review. After verification, the team accepts it and shares their findings openly with the academic community for public scrutiny. If future revisions are ever deemed necessary the entirety of the scholarly body would jointly review and implement the revision. Every scholar would have their own copy of the information, compare their findings to other scholars and in the end the group would form a consensus on what the best interpretation of the information would be.
In an overly simplified essence, this is the operation that the blockchain takes. Another explanation comes in this two minute video below from the IFTF, or Institute for the Future. However, if you would like a more heavily detailed, thorough explanation I would refer you over to Blockgeeks where there is a very detailed guide up that was written over a year ago.
So, What’s Different About Ethereum?
Ethereum has another goal apart from being solely a decentralized digital currency. It looks to create decentralized applications and smart contracts, or scripts with the blockchain. This distributed computing requires immense processing power and results in a decrease in processing speed, a major hurdle for Ethereum development because all of the smart contracts in the blockchain are being processed at once in real time. The main quality has been finding avenues for increasing scalability and Ethereum’s widespread adoption as a platform for newer blockchain startups to use as a base to develop from.
Ethereum can be a bit confusing for more than a few reasons. One being its split into two entities. Ethereum (as its original unified blockchain was named) underwent a hard fork in 2016 after an exploit was found which resulted in $50 million worth of Ether, the Ethereum cryptocurrency, being illegitimately claimed by some anonymous person or group. Since that time, Ethereum (original unified blockchain) split into two different blockchains: Ethereum Classic (continuation of original blockchain) and Ethereum (new blockchain).
The reason for the split wasn’t about security of the blockchain, but about the sanctity of the blockchain itself. A special vote was taken to return the $50 million worth of Ether to the original owner, but some members rejected this notion on principle. They viewed the blockchain itself as immutable and disagreed with the alteration of the code in order to enable the original owner of the Ether to have their funds returned. However, the vote was won by those in favor of the fork on ethical grounds and the splinter of Ethereum into two blockchains ensued.
By their very nature Bitcoin and Ethereum, along with other versions of cryptocurrency, are forerunners to new digital global currencies. With the current worldwide surge in populism and resurgence of the sovereignty of the nation-state, perception of all things related to globalism are tinged with the air of tyranny and forfeiture of a certain amount of rights that the national citizen enjoys. Although the technology of the blockchain is clearly a new era in beyond mere record keeping, adoption of the accompanying cryptocurrency attached to each may be a difficult pill for those out side of Millenials to fathom, but the future truly is now.